Gold for August delivery at the COMEX division of the CME fell $19 to settle at $1,393 an ounce. The gold price traded as high as $1,421.60 and as low as $1,389.20 an ounce, while the spot price was dropping $21.60, according to Kitco's gold index.

The U.S. dollar index was rising 0.46% to $83.39 after the Chicago Institute for Supply Management said its business barometer popped to 58.7 in May, up 9.7 from April. Economists polled by Thomson Reuters were expecting the index to hit 50.

Also jumping more than expected was the institute's employment barometer, which printed at 56.9 in May, up from April's 48.7 reading.

Analysts said gold prices were retreating on Friday after the yellow metal tested and failed to move past $1,420 an ounce.

"It's a bit hard to add for the upside beyond that ... so all of these moves are kind of rallies I think in a bear market still," said Edward Meir, precious metals analyst at INTL FCStone. "I still think gold is heading lower."

Silver prices for July delivery closed off 45 cents to $22.24 an ounce.

Meir said outflows from major funds, including John Paulson's hedge fund and George Soros' fund, slowly continue to mount in the gold futures markets and exchange traded funds.

April's historic two-day selloff in gold prices mostly resulted from a run on the paper markets -- trading on futures and ETFs -- but physical demand by global central banks and retail purchasers in India and China supported the price from driving lower in the past month and a half. Meir said the physical support has been substantial, but he said it could only sustain for so long.

"If people are buying physical gold and they're not seeing appreciation, they're either not going to be buying more or the next wave of buyers are going to hold off as well," said Meir.